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Please guide me regarding the effect of converted debentures during the year on diluted eps.
For example
Number of shares before conversion=1 million
12 % Convertible debentures 10,000. Each debenture is convertible to 3 ordinary shares.
Profit after tax is 50 million.
Tax rate 30%
On 30 june (mid of the year) half of the debentures are converted.
How diluted eps will be calculated in this case ?
Thanks and regards,
Noman TufailYou work out diluted eps as though all the debentures had converted on the first day of the accounting period so:
The 50,000,000 must be after half a year’s debenture interest on 10,000 and half a year on 5,000. That’s 900 debenture interest. After tax, that’s 630
earnings are 50,000,630 divided by shares of 1,030,000
You do the math
Thanx 4 reply sir
It means that there is no effect on diluted eps calculation of whether the debentures are actually
converted or not during the year?No, there is an effect because the earnings figure you gave me would be the net figure after the half year’s interest on the full debenture and another half year on the unconverted debenture. We need to consider what the earnings figure would have been if ALL the debentures had been converted on the first day of the accounting period – even though we know that they weren’t!
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